Lockhart Says Fed Faces ‘Close Call’ on Additional Easing

Federal Reserve Bank of Atlanta
President Dennis Lockhart said the central bank has a tough
decision on whether to add further stimulus to promote a
stronger economic recovery.

“I think it is a close call, really,” Lockhart, who votes
on monetary policy this year, said today in a CNBC interview
from Jackson Hole, Wyoming. “I am not overly concerned with the
longer-term costs of more action but at the same time I see
limited benefit from more action.”

Many Fed policy makers said additional stimulus would
probably be needed soon unless the economy shows signs of a
durable pickup, according to minutes of their most recent
meeting released on Aug. 22. Chairman Ben S. Bernanke, who last
month said a third asset-purchase program was an option, has an
opportunity to update his policy outlook tomorrow in a speech to
the Kansas City Fed’s annual Jackson Hole symposium.

If job growth were to fall persistently “well below
100,000 a month” or there were “signs of disinflation” that
could lead to falling prices, “then there wouldn’t be much of a
question about policy,” Lockhart said in the televised
interview.

The central bank still has the ability to push interest
rates lower, which might, for example, lead to mortgage rates
edging down and qualifying more borrowers for loans, the Atlanta
Fed president said.

Record Lows

Still, interest rates have been near record lows for years,
and that hasn’t translated into a strong recovery, Lockhart
said.

“When I talk to business people, they say we have never
seen interest rates so low,” Lockhart said. “That doesn’t
necessarily mean it is a big incentive to borrow. That is a
little bit of the problem we are dealing with.”

The U.S. economy appears to be growing at about a 2 percent
annual rate, he said.

“That is very modest growth,” Lockhart said. “It is not
the kind of growth that is likely to bring great progress in
bringing down unemployment. Inflation has been well behaved. In
recent quarters, it is a little over the Fed’s target of 2
percent.”

The Standard & Poor’s 500 Index fell 0.9 percent to
1,398.08 at 10:51 a.m. in New York, while the yield on the
benchmark 10-year Treasury note declined 0.03 percentage point
to 1.62 percent.

Fed officials are scheduled to meet next month as slowing
improvements in the job market and a stalling expansion raise
the odds for more stimulus.

Bernanke has said options for the Fed include more asset
purchases and cutting the interest rate the Fed pays on reserves
banks keep with the central bank. The Fed has kept its benchmark
interest rate near zero since 2008 and has bought $2.3 trillion
in securities.

Lockhart, a former Georgetown University professor, has led
the Atlanta Fed since 2007. The Atlanta Fed district includes
Alabama, Florida, Georgia, and portions of Louisiana,
Mississippi, and Tennessee.